Douglas Webb
Computers
Open up!
by Russell Brown
Why the Telecommunications Commissioner has done an unbundling about-face.
It seems like only yesterday that the government’s programme of renewing – and, if necessary, revamping – our telecommunications regulations was essentially orderly and transparent.
Certainly, it often appeared to be proceeding at a snail’s pace, but as Paul Swain had promised to look at the competitiveness of the telecoms sector before the 1999 general election, the government and its officials did appear to be placing one foot in front of the other. It’s only lately that they have started breakdancing.
Under legislation passed in 2001, the Commerce Commission had to investigate the merits of requiring Telecom to unbundle parts of its physical network: that is, make it available to competitors, at a specified wholesale rate, on the assumption that the network – especially the “last mile” of copper to our homes – could not feasibly be replicated by anyone else, and thus Telecom’s control of it was an impediment to competition.
There were robust arguments against unbundling – among them, as the Business Roundtable pointed out, the simple matter of property rights. Telecom has been valued since its privatisation on the assumption that it controls its own network.
Nonetheless, last September Telecommunications Commissioner Douglas Webb, who oversaw the inquiry, announced a “preliminary view based on extensive investigation and the results of the cost-benefit analysis and the findings on competition” that significant elements of Telecom’s network should be unbundled. Among other things, this could mean that competitors would be able to operate their own equipment from inside Telecom’s exchanges.
The following month, the commission released an “amended” version of its draft report, based on a reassessment of some of the numbers in its cost-benefit analysis. “Although the amendments reduce some of the benefits reported,” the commission said, “the net benefits from unbundling remain substantial.” The more modest alternatives – line-sharing and “bitstream” access for competitors – were ruled out.
The ultimate decision now appeared to be firmly in the political arena. It might take a while and it might be watered down a little, but the way forward seemed quite clear. And then, just as everyone was packing up for the beach, Webb announced a startling about-face. He would not, after all, recommend unbundling: only a designated form of bitstream access that obliged Telecom to offer a high-speed DSL data service to competitors at a set wholesale rate.
Had this emerged in the inquiry’s original findings, it might have been cause for disappointment from the proponents of bold regulatory action – but not bewilderment. After all, ordering an incumbent telephone company to open its lines is a fairly radical step. And although unbundling has been a screaming success in such places as Japan, the results have been more tepid elsewhere. Some analysts hold that simply handing TelstraClear access to Telecom’s network means that TelstraClear will have no incentive to further invest in its own network.
But the inquiry had apparently considered these downsides and – in what was by all accounts a deliberately conservative analysis – still concluded that unbundling offered substantial benefits. So what happened? Webb credited a “market-led solution” announced by Telecom between the draft and final reports, which will see Telecom partially free up access to circuits used to deliver data services to major users. This, he said, had made sweeping regulation unnecessary.
It seems odd. The corporate sector is relatively well served for competitive telecommunications offerings. It’s the consumers who don’t currently enjoy competition. To its credit, the commission has focused on the most glaring problem: the market for high-speed DSL services, which Telecom, because it owns the lines to our houses, controls. Telecom has been unable or unwilling to make JetStream attractive to many of us. As a result, New Zealand, which once led the world in uptake of the Internet, has fallen far behind other developed countries in the move to broadband.
But the proposed solution has problems. Telecom’s competitors will be able to offer a JetStream-like service over Telecom’s network, but it’s unclear what, if any, guarantees those competitors will be able to offer on the service.
Worse, the commission has dictated that the upstream speed (that is, from you back to the network) will be no greater than 128Kbit/s. On a good day, the upstream speed of Telecom’s JetStream is about three times that: so Telecom will be ordered to provide competitors with a service that is inferior to the one it sells to consumers.
The commission has also specifically ruled out support for other “real time” uses for such a service, in particular voice-over-IP (which will eventually replace all conventional voice telephony), video-conferencing and television-over-IP. So, although the solution does hold promise for more affordable residential broadband services, it has effectively been designed to need fixing in the future. Even leaving aside the various conspiracy theories about the about-face, it is a strange solution indeed.
